DEPARTMENT OF BANKING AND FINANCE

SCHOOL OF MANAGEMENT STUDIES

NUHU BAMALLI POLYTECHNIC, ZARIA
(P.M.B. 1061)

ASSIGNMENT ON
FINANCE OF INTERNATIONAL TRADE

COMPILED BY

VICTORY MUSA
HBAF1600342

QUESTIONS
E-banking is a a

AUGUST, 2018
INTRODUCTION

The increasingly competitive environment in the financial service market has

resulted in pressure to develop and utilize alternative delivery channels. The most
recently delivery channel introduced is online banking. Online banking is
otherwise refers to as electronic banking; and electronic banking, similarly is term
as e-banking.

Online or electronic banking systems give everybody the opportunity for easy
access to banking activities, thus promoting financial inclusion. These banking
activities may include retrieving an account balance, electronic money transfers
and retrieving an account history electronically. Electronic banking (E-banking)
has gradually become an indispensable part of modern day banking services. All
over the world, banking industry is one of the industries that have adopted
technology which helped in rendering better and quality services to customers.

The quality of services is enhanced using technological innovations.

Technological innovations have continued to engender speed of transactions and
prompt service delivery in banks, thus promoting customers’ convenience and
satisfaction. One of the major significance of e-banking products and services is
improved efficiency and effectiveness of the operations so that transactions can
be processed faster and most conveniently. Thus, it is expected to enhance
customers’ services, effective distribution, improved operations, faster access to
information and improved internal processes. This implies that customers’ benefit
ranges from reduced frequency of going to the banking halls to handling of cash.

CHALLENGES IN THE IMPLEMENTATION OF E-BANKING AND

HOW TO OVERCOME THEM

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Top Management Commitment to E-Banking Implementation

For a successful implementation of e-banking the top management must be

committed both in word and in execution. Turban et al., (2000) cited that it is
important for the management to be involved in the financing and participate in
the day to day running of the e-banking operations. Management may commit
resources to information systems for various reasons including cost cutting, new
revenue potential, improved competitiveness and quality of products and services
because of perceived benefits of e-banking. Among the various reasons, cost
effectiveness stands out as the most significant factor influencing management
adoption and implementation of e-banking services (Sayar and Wolfe, 2007). On
the other hand, some organizations are faced with having top managers and
employees who are resistance to change and this may cause an organization to
lag behind in this competitive world. Harris and Spence (2002), exploring the
ethics of business-to-business e-commerce, mentioned that banks need to be
actively involved in the development of internet infrastructure and since it is the
responsibility of the top management to make such long term and provide for the
working capital of e-banking projects, they are expected to be fully committed .
They argued that internet technology for instance, must be matched with very
strong software and networking systems, customer-value-perception-based
strategies, benchmarking and sufficient training for staff. In order to overcome
these challenges, banks need to employ additional strategies over and above
routine technical solutions to doing business in cyberspace given the availability
of portable devices such as mobile phones, pads. Bovey and Hede (2001) suggest
that management of banks must employ a balanced approach to e-banking,
incorporating technical aspects involved as well as working with the human factor
associated with the venture in order to carry it out smoothly.

According to Tolbert and Zuker (2003) innovation of information technology

would be more likely if the political environment within an organization has

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norms favoring the change. Thus, when there is support from top management
adopting of e-banking would be easy and smooth. Management support has been
identified as crucial in the acquisition of innovation (Orlikowski, 2003). Since
top management consists of individuals with power and authority to make
strategic decisions; it is easy to develop a clear-cut of ebanking vision and
strategy while at the same time sending signals to different parts of the
organization about the importance of e-banking and the need for every employee
to get committed on the same. Given the limited nature of organizational
resources and the many competing projects, top management support ensures that
an e-banking innovation project will get the required resources and capabilities.
There is a positive effect of leadership support on innovation adoption; Rai and
Patnayakuni (2006) found that top management support had a positive effect on
case tools adoption behavior in information system departments. It is important
that top management need to get involved in order to gain a good understanding
of the issues surrounding e-banking and mobilize organizational stakeholders
(Epstein, 2010).

Operational Risk and Reputational Risk

Operational risk of e-banking is the central of system availability and security to

the dependability on new technology which provides services. Security threats
can be internal or external to the system such as system hacking, viruses and due
to this, banking regulators and supervisors must check that banks have the right
measures in place to secure data integrity and confidentiality for the institution
and customers. These security practices should be tested on a regular basis by
technical skilled personnel to analyze network vulnerabilities and recovery
preparedness. The integral part of the overall management and supervisors need
to include cubing of operational risks in their safety monitoring and evaluations
procedures. E -banking increases banks dependence on information technology,
thereby increasing the technical complexity of many operational and security

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issues and furthering a trend towards more partnerships, alliances and outsourcing
arrangements with third parties. This development has lead to the creation of new
business models involving banks and non blank entities, such as Internet service
providers, telecommunication companies and other technology support firms
(Sayar and Wolfe, 2007).

E-banking carries legal risks for both the banks and customers. Banks have grown
geographically faster in terms of services which they render through e-banking
compared to the traditional banking method. In some cases, however, the banks
rendering these services might not be fully acquainted with laws and regulations
abiding in that area before offering such services, either with a license or not.
When this license is not there, a bank not having adequate contact with its
supervisor from the host country may find problems adapting to the regulatory
requirements in the foreign countries. As a result, banks being unaware could go
against the protection laws of a customer, including data collection and
privacy/confidentiality of customers’ account information and this may subject
the banks to huge losses through lawsuits or crimes that are not prosecuted
because of jurisdictional disputes (Mols, 2008). Furthermore, money laundering
has increased over the years because of the growth and usage of online banking
services. Many countries have been forced to put in place proper measures for the
identification of customers when an account is being opened and for future
transactions in the customer’s account.

Reputational risk which arises from negative public opinion can significantly
affect operational smooth implementation of e-banking and customer acceptance
of e-banking products and services. A bank’s reputation can be damaged by e-
banking services that are poorly executed or otherwise alienate customers and the
public. Therefore, it is important that customers understand what they can
reasonably expect from a product or service and what risks and benefits they incur
when using them. Customer education along with formal incident response and

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management procedures can help lessen a bank’s reputational risk. Banks are
required to communicate in a transparent and clear way and meet their obligations
in this regard. The management has to agree on the communication strategy and
content so that customers don’t get the notion that, use of E-banking channel may
be debiting their accounts with hidden charges, given that customers nowadays
monitor very keenly any transactions made in to their accounts.

Bank’s reputation can be damaged due to violation of security and disruptions to

the availability of the system. Reputational risk is more depended on the reliance
on electronic delivery channels which in turn increases its potentials. For
instance, a bank that offers electronic services may experience many problems
that might lead to the loss of confidence for the banks products and services in
customers who use electronic delivery channels, and these problems can
potentially affect other providers of electronic banking services. Security risks
can be amplified and may result in a loss of confidence in electronic delivery
channels. According to Daniel (2009), the level of security or risk associated with
adoption of e-banking is a major factor affecting the acceptance and adoption the
e-banking products. Even in countries where electronic banking has long been
established, one of the most important factors slowing progress of this new
innovation is the customers concern for security of financial transactions over the
Internet and electronic means. Therefore, security is one of the very important
factors in determining the decision of customers to use e-banking platform.
Similarly, security concerns are keeping both consumers away from e-banking.
Along the same lines, The Walls Report (2007) argues that, unless security is
improved, most clients would not be willing to conduct their transactions over
electronic means.

Qualification of Information Technology Personnel to Handle E-banking

Shah and Siddiqui (2006) found in their study on e-banking at the Woolwich bank
in UK, that the availability of highly skilled human resources is critical in

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implementing ebanking products and services. The greatest challenge facing
developing countries is the development of the qualified human capital needed to
operate a modern economy and society effectively and especially in firms like the
banks which need more qualified technical experts of the Information
Technology because of sensitivity of transactions involved. Exploiting the human
potential is a major means to meeting the developmental needs of organizations
and countries in general and which also enhance competitiveness in the global
economy at large (Milek et al., 2011). In the study by Shah and Siddiqui (2006),
they identified that in the implementation of internet and electronic device
projects, the shortage of readily skilled human resources can be a severe challenge
for good implementation process of e- banking services. Alawneh and Hattab
(2009) found out that the lack of well trained and up to date IT personnel may
affect value creation in the banking sector since value creation comes in when the
input factors which among them the human capital and the infrastructure are well
skilled and up to date respectively. Earl (2002) furthermore identified that while
managers typically have a high-level understanding of their business and
operational processes, they often lack employees with the experience and skills
necessary to adopt software technologies and educate customers and it’s thus the
duty of the managers to get the right qualified people for these jobs.

General ICT Policy in the Country that Favour Proper Implementation of

E-Banking

The prevailing ICT policy in the country in question must be favourable for
smooth implementation of innovative e-banking products and services. Countries
must have priorities which determine the national development agenda for e-
banking services. The importance of ICT as a development tool has often been
neglected (Milek et al., 2011). For example, Sumanjeet, 2009 cited in order to
address this issue, Ghana instituted The Ghana ICT for Accelerated Development
(ICT4AD) policy in June 2003. This policy aimed at transforming the country

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into an information-rich knowledge-based society through the development,
deployment and exploitation of ICTs within the economy. However, the policy
faces a number of key challenges including the lack of finance, limited human
resource capacity characterized by low professional, technical and managerial
manpower base. Likewise developing countries like Nigeria should also make a
clear move to develop better and favourable polices for the adoption of ICT in
many firms locally. It is true that ICT usage in most developing countries lags
behind the developed world and they have to pull up to be at per. For instance, in
Africa, internet user penetration has been less than desirable despite the people
having knowledge on the same. The International Telecommunication Union
(ITU) projected that by the end of 2010, internet user penetration in Africa was
to reach 9.6%. This is relatively very low when compared with the world average
of 30% and the developing country average of 21%. This means that generally,
in Africa, very few people are familiar with the use of the internet. According to
the ITU (2010), while in developed countries, 71% have a computer and 65.6%
have internet access, in their developing country counterparts, only 22.5% have a
computer and 15.8% have internet access. In addition, broadband subscriptions
are no better in developing countries; they are at a mere 4.4% as compared with
24.6% in developed countries. Specifically, in Ghana, as at June 2010, internet
users represented a partly 5.3% of the estimated population of 24.3 million (ITU,
2010).

CONCLUSION

According to research results, top management commitment, operational and

reputational risks, qualification of the ICT personnel to handle e-banking and ICT
policy that support the implementation of e-banking services are considered to be
major barriers in the proper implementation of e-banking at the National Bank of
Nigeria.

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In order to improve on the implementation of the e-banking at the Bank, the Top
Management of the bank needs to incorporate good working relations with junior
staff and allocate enough resources of human work force and finances needed to
buy more standard equipment, and new application servers and have in place
proper operational procedures that give clear guidance on the current and future
expected e-banking service provision to the customers. Respondents also
indicated that top management needed to initiate and approve the e-banking
projects, provide resources for its deployment and ensure that proper systems are
put in place in order to serve customers well.

The banks should also put in to place proper operational processes that are up to
standards in an effort to provide satisfactorily service to customers. When the
customers get e- banking products and services according to their needs, they tend
to express a positive attitude towards the banks image and this on the other hand
reduces chances of negative impression on the bank in the competitive financial
market. In the operationalization of the banks e- banking systems, the bank should
put in place proper measures to deal with internet hackers and computers viruses
which are a major threat on the operations of the banks businesses. They should
have up to date anti-viruses and ensure that people have no access to certain
programs that might create insecurity issues, like the ability of a staff member to
access customer’s accounts and make withdrawal transactions and delete that
particular entry from the system.

The management of the bank should ensure that the ICT personnel and the
management have the proper training. They should also ensure that the right job
is given to the right person who understands and are motivated to add value in the
bank’s financial business. Again, hold seminars and training courses in the field
of electronic banking. However, in the managements effort to adopt new Core
banking processor, the respondents pointed out the quality of the vendor
personnel (Core banking service consultants) is more important and that they

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encourage the banks’ personnel to learn from them to make the system better
given that many of the e-banking structures are vendor-dependent.

The general ICT policy in the country that favour proper e-banking
implementation should be improved as a move to create a good working
environment for the bank in provision its e-banking services even to the most
rural areas in the country. Lack of an effective ICT policy in the country could
impact negatively on the development of ebanking because it limits availability,
accessibility, and use of information technology based products in the country
given the security issues facing the country. There should be a clear directive to
have all the bank’s ATMs and Banking Halls fitted with CCTV cameras as a
security measure against fraud issues.

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